Eco 211 Exam 3
National defense is an example of
Public good
National defense and warning systems
Public goods
Poll tax
a fixed amount of tax that tax-payers must pay regardless of income
If a product costs $4, and government fixes the price at $3.50
a shortage in the market will occur
A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50
a shortage of milk will occur
Coase Theorem
bargaining eliminates inefficiencies
Command economies
centrally planned, government allocates resources and prices don't fluctuate
A government regulation that ban use of a certain polluting technology in production of a good
command and control approach
Paternalism
consumers don't always know what is best for them, the government should encourage or induce them to change their actions
When prices are not allowed to fluctuate there is (price ceiling/floor)
deadweight loss
A price ceiling leads to a
decerase in total surplus
Efficiency in competitive markets is characterized by
every buyer whose willingness to pay is greater than or equal to marginal cost is served in the market
Which of the following is NOT true regarding externalities?
externalities have no effect on market efficiency
What do price controls weaken?
function of the invisible hand
transfer payments
government payment to certain individuals or groups
Club goods
highly excludable but non-rival in consumption
Efficiency
if an output maximizes the total surplus generated
Which is NOT a feature of market economy?
it provides equity of income and consumption for market participants
If a tax is imposed per unit of a good sold the supply curve shifts
left
The reservation of a seller reflects her
marginal cost
Production of a good gives rise to a positive externality
marginal social benefit from each level of output exceeds the consumers willingness to pay
Positive externality
market equilibrium has under production leading to a deadweight loss
If the market supply curve of a commodity is more elastic than its market demand curve, tax indigence is likely to fall
more on consumers than on producers
When sellers in a perfectly competitive market attempt to maximize their own profit they
move scarce resources to highest use
Traffic congestion is an example of
negative externality
Public goods
non-excludable and non-rival
The tragedy of the commons occurs because some goods are
non-excludable but rival
Tragedy of commons
occurs when goods are non-excludable but rival
Furniture is an example of
ordinary private good
Education is an example of
positive externality
The presence of external benefits associated with production implies that
private output is less than the socially optimal output
Federal government relies on ____ to limit inequality
progressive taxes
A poll tax is
regressive
When positive economic profits exist in an industry
resources flow form less productive uses to that particular industry
Common pool resources
rival and non-excludable
underground economy
side steps government regulation, makes it less effective
When buyers and sellers optimize in a perfectly competitive market
social surplus is maximized
Marginal tax rate
tax rate on the last dollar of income earned
Budget surplus occurs when
tax revenue exceeds government spending
A price ceiling does NOT lead to a deadweight loss if
the equilibrium market price lies below the price ceiling
A black market can emerge for a good if
the good is taxed heavily
Which of the following will lead to an efficient private solution if negative externalities are present in a market?
the parties involved negotiating with each other and reaching an agreement
Reservation value
the price at which a trading partner is indifferent between making the trade and not doing so
If a tax is imposed per unit of a good sold
the supply curve for the good shifts to the left
tax structure
under a progressive tax system, higher for higher income
Externality
when an economic activity imposes spillover costs or benefits on a third party
direct regulation
when government directly restricts the amount of economic activity (FDA)
Corrective tax
when negative externalities exist, gov. can improve market outcome by imposing a tax
